What Apple’s dividend and buybacks mean to you

Apple has decided to give some of its cash back to investors for the first …

It's official: Apple has finally decided to do something with its growing mountain of cash. The result is not a splashy acquisition in tech, nor is Apple CEO Tim Cook buying a collection of private islands in the South Seas. Rather, the company is acting like a grown-up: Apple expects to spend about $15 billion a year on share buybacks and dividends.

None of that sounds very exciting unless you own Apple stock. If you do, you're likely applauding the company's newfound money management skills. After all, money in Apple's bank accounts is worth less to investors than cash that is being paid back directly to shareholders.

In 2011, Apple collected $519 million in interest and investment income. That's on an average cash balance of $28.4 billion and $51.2 billion in average long-term investments. And that's a whopping 0.7 percent APR, comparable to your average savings account. Returning some of that cash directly to investors gives each shareholder the power to earn greater returns on that money than Apple is doing on its own.

What's so great about dividends and buybacks?

The announced quarterly dividend of $2.65 per share works out to an annual yield of about 1.8 percent to investors. That's hardly ultra-generous, even by tech standards: Intel's yield is 3 percent today, Microsoft pays out 2.5 percent, Texas Instruments runs a 2.1 percent payout, and telecoms like Verizon and AT&T typically sport yields north of 5 percent. Rather, it's a modest dividend along the lines of IBM and Cisco, both in the general neighborhood of 1.5 percent.

As for the share buybacks, the program isn't designed to juice share prices. Instead, Apple plans to neutralize the dilution from employee stock purchase programs and equity grants.

A cynic might say that Apple's stock-based compensation forces shareholders to help out with the company's payroll costs. Buying back those shares, sometimes years later and at unpredictable prices, may not seem like a terribly efficient method of managing your expenses. At worst, these practices hide a portion of the payroll costs from the income statement and earnings-per-share calculations, shifting them to cash flow expenses that fewer investors look at.

But stock-based compensation is also a motivational tool, giving employees a sense of sharing the company's success. It's a tool in very wide use across the tech sector and elsewhere, to the point where it's harder to find a company that doesn't play these games than one that does. And now Apple is at least paying the piper, at long last. Apple hasn't repurchased a single share of its own stock since 2003. Since then, the company has recorded $5.1 billion of expenses for freshly issued shares, and that number still leaves out unexercised options.

Apple's fully diluted share count rose 0.9 percent in 2011, from 933.2 million to 941.6 million. Allocating $10 billion over three years to combat that effect will reverse some previous damage, though it's hard to say exactly how much. The effectiveness of buybacks depends on share prices on the open market, and if Apple's shares keep rising like they've been doing in recent years, this could be a wash. It's still better than doing nothing to fight dilution, of course.

The smart way out

All things considered, this is a smart and mature announcement. Shoving a $100 billion pile of cash and investments under your mattress makes you look big and rich, but doesn't help your shareholders any and only spurs endless questions about your plans.

But maybe you were hoping for a headline-making acquisition instead. Tim Cook could have chosen to buy (and still can buy) something big and strategic like T-Mobile, Netflix (full disclosure: I own Netflix shares), or Dell, but he doesn't need that kind of a headache. Just think back at mega-mergers like Hewlett-Packard and Compaq, AOL and Time Warner, or Excite/@Home. The cavalcade of horror stories is enough to give any CEO or investor nightmares.

91 Reader Comments

You can disagree if you want. And it's more much complicated in the real world. But straight finance theory says dividends decrease shareholder wealth.

...in the short term. If you can get 4-5% (rather than the .7% Apple is getting now), it doesn't take all that many years before 30% reduction pays for itself. That pile of cash is slowly losing value -- inflation has beat .7% for the vast majority of months over the past dozen years. If Apple isn't going to invest it, they should return it to investors who will.

So we know beyond a shadow of a doubt that it is invested in Money Market funds return below inflation?

Of course, the scenario is likely more complicated than that. I was merely borrowing .7% from the article. That said, I don't buy Apple shares so that Apple can manage my money for me. That is not their expertise. I buy Apple shares so they can make a shitton of money doing what they do best: making great products. Apple holding onto its cash is a waste of the money they are making on my behalf.(Note: I am not actually an Apple shareholder; merely used the phrasing because it seemed more clear.)

What, buying Dell is strategic? Are you out of your mind? I mean you could say Arm or PowerVR/Imagination Technologies, but Dell. What a hell would Apple use Dell for?

To close it down and put Dell customers (full disclosure: I bought a Dell. Once.) out of their misery?

I did perhaps wonder if Tim Cook was going to buy Greece. Or perhaps Iceland, geothermal power for data centres and all that. Frivolity aside, this announcement does indeed make Apple look like a grown-up company. I've read reports from some analysts speculating that over the next 5 years they will head toward a trillion- dollar valuation - speculative, but perhaps necessary if Apple wants to control its own digital distribution channels - cellular networks, TV - as it does it's retail channels.

"After all, money in Apple's bank accounts is worth less to investors than cash that is being paid back directly to shareholders."

That's actually not true. The money is worth more if Apple keeps it.

Imagine if I was the sole investor in a company. The company makes $1. If I own the company so I own the $1. But if I take it as a dividend instead, I now have what $0.70 or so?

Apple's cash is already owned by the stockholders. A dividend just means you have to pay taxes on it.

Publicly traded, limited-liability corporations don't work like that. The corporation is an individual entity (legally a person) who owns that money. You own a percentage of control over that entity, but you technically don't own any of its worth (other than the stock).

For instance, if you defaulted on a debt, the stocks you own (at fair market value) can be used to pay it off (or possessed) but you cannot sell the corporation itself (and what money it has in the bank) as collateral. Likewise, if the corporation gets sued (or possessed), your personal funds will not be liable.

If you had a majority controlling interest (that is, you own >50% of the shares), you can choose to have the corporation give you a giant bonus or pay you a giant salary (or buy back shares with that money and give them to you). But that would incur taxes as well.

So, I think Apple said the dividend and share buyback would work out to something like a $45 billion expenditure of domestic cash over the next 4 years. That works out to something a bit less than $12 billion per year.

Apple made $31 billion in profits last year (2011). Apple's profits have increased year-over-year for quite awhile now, and 2012 looks to bring in more profits than 2011.

This means, even with the dividend and share buyback, Apple's cash hoard will still be increasing some $20 billion per year, no?!?

So, the question will still be--what will Apple do with all that cash??? Five years from now, they'll have $200 billion, instead of the $100 billion they have now!!!

That is what is so great about this solution. The Analysts have been wanting some kind of distribution of the cash hoard for so long that now even just a small trickle in the short-term has quenched their thirst. They are so happy about the small dividend and finally getting what they wanted for so long that they aren't thinking about the "long game".

As a shareholder, I would prefer they keep the war chest and use it to help break down the old broadcast business model, continue ensuring priority supply of components, and continue to purchase patent portfolio's in cooperation with other tech companies (Nortel patents).

1. The market return is not 8% nominal. Most institutional investors target something like 2-3% real.

2. You are mixing up topics. You want do something different than Apple with the cash you own. You want to accept more risk and make a higher return. Your "opportunity cost" argument is not relevant to dividend policy. Apple could invest in higher risk investments too.

Wanting to do something different with the cash is a perfectly legitimate thing and a major reason companies pay dividends. But it's accepting higher risk that is making you more money. Not Apple paying a dividend.

Market return varies with the time period you're examining. If you want to go with 3% real (6% nominal), whatever. However, you're missing a huge chunk of Finance 101if you don't understand the concept of opportunity cost (or hurdle rate, or whatever term you may or may not have been taught, it's all the same thing really), or don't understand that as a shareholder, that 0.7% is a return on YOUR assets. The people that were okay with that return (and the fact that it came from the negligible risk of buying short term treasuries to get there) weren't the people calling for Apple to do something with its OWNERS money.

There is no reason why Apple's cash hoard should be acceptable to shareholders. Even if a retirement fund WANTED low risk/low returns, they might as well buy the t-bills themselves. The fund could put the money into longer maturity bills and actually keep up with inflation. 0.7% is a really, really poor return. Flat out.

vatdoro wrote:

The craziest thing about this announcement is the $100B is still sitting "under their mattress". The entire $45B plan will be paid for by future US cash earnings. That's insane! This plan doesn't even touch their existing cash pile. It just slows down their future US cash accumulation. The foreign cash accumulation will continue to rise at an alarming rate.

I'm only half-joking when I write:So why can't they just hold on to the cash and just drop all of their prices 20% or so?

As a stockholder I would ask, if Apple can break records and run out of product at the prices they currently charge, if Mac sales continue to rise at current prices in the middle of a recession, over the very same period where PC sales have been progressively dropping, then I ask, as a stockholder...why on earth should Apple lower their prices?

I don't own many shares, especially compared to an institution, but I am a stockholder. And a Mac user. And I am happy that Apple has multiplied my investment 5x. It has more than made up for whatever perceived price difference there is between a Mac and a comparably equipped PC.

First of all, dividends are essentially double taxed. They cannot be considered a pre-tax expense, so they've been taxed once already and are taxed again once they're paid out to investors. A ton of money is lost in that process and it's much better if the company uses the money to invest its operations. Shareholders shouldn't be telling Apple to pay a dividend, they should be telling Apple to invest it yearly profits before tax in better ways.

Secondly, as mentioned before, this opens Apple up to a whole new category of investors. These are exactly the type of investors that destroy otherwise innovative companies. They demand dividends above re-investing the money back into the company, and this begins the slow drain. See AT&T and Verizon for prime examples of this. These companies make tons of money and could very easily afford to build out FTTH to all of their customers. They can't however, because their dividend happy investors won't allow them to do so. It scared AT&T into doing FTTN instead, and Verizon got heavily slammed by the investment community for Fios. This is one of the reasons why the Fios rollout was curtailed.

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

So why can't they just hold on to the cash and just drop all of their prices 20% or so?

It hurts their brand image. Apple is viewed as a luxury brand with quality luxury products.

Apple is notorious for having well placed strategic price points that are "just within reach" for people and still ensure a great profit margin for Apple. When Apple drops a price they drop it for good.

Apple already has amazing demand for its mobile/portable products and the demand for the Mac has been rising. Maybe a price cut would help increase demand, but the demand for your products continue to increase without instating a drastic price cut?

1. The market return is not 8% nominal. Most institutional investors target something like 2-3% real.

2. You are mixing up topics. You want do something different than Apple with the cash you own. You want to accept more risk and make a higher return. Your "opportunity cost" argument is not relevant to dividend policy. Apple could invest in higher risk investments too.

Wanting to do something different with the cash is a perfectly legitimate thing and a major reason companies pay dividends. But it's accepting higher risk that is making you more money. Not Apple paying a dividend.

Market return varies with the time period you're examining. If you want to go with 3% real (6% nominal), whatever. However, you're missing a huge chunk of Finance 101if you don't understand the concept of opportunity cost (or hurdle rate, or whatever term you may or may not have been taught, it's all the same thing really), or don't understand that as a shareholder, that 0.7% is a return on YOUR assets. The people that were okay with that return (and the fact that it came from the negligible risk of buying short term treasuries to get there) weren't the people calling for Apple to do something with its OWNERS money.

There is no reason why Apple's cash hoard should be acceptable to shareholders. Even if a retirement fund WANTED low risk/low returns, they might as well buy the t-bills themselves. The fund could put the money into longer maturity bills and actually keep up with inflation. 0.7% is a really, really poor return. Flat out.

I'm not arguing that people shouldn't want the cash. I am arguing that the author's statement that "after all, money in Apple's bank accounts is worth less to investors than cash that is being paid back directly to shareholders" is a fundamentally incorrect statement.

Moving a dollar from Apple's bank account to your brokerage account will never add up to more than a dollar. It's almost certainly less in fact because of transaction costs and taxes.

Let's say company's only asset is $1000. They have 100 shares outstanding and decide to pay a one time dividend of $1 per share.

Has the stockholder just made a dollar? Of course not! I have a $1 dividend now, but now my 1 share is only $900/100 = $9. And in a world with taxes, I am worse off.

Now what about a paltry rate of return you say? Very legitimate concern. I want cash to invest in something with a better interest rate.

Why, I could sell 1/10th of a share and make my own dividend! I make $1 from selling my 1/10th a share (again, taxes though). And my investment is in the company is now worth... $9! Same as if a dividend was paid.

This simple example is why dividend policy is overblown. It's not to say it doesn't matter, but it doesn't create value the people think it does. Simply getting paid a dividend doesn't make the shareholder better off.

I'm not arguing that people shouldn't want the cash. I am arguing that the author's statement that "after all, money in Apple's bank accounts is worth less to investors than cash that is being paid back directly to shareholders" is a fundamentally incorrect statement.

Moving a dollar from Apple's bank account to your brokerage account will never add up to more than a dollar. It's almost certainly less in fact because of transaction costs and taxes.

That only assumes he was using a definition of "worth" that doesn't include the opportunity cost. Which pretty much no one does. Your examples of companies you own entirely don't make much sense either, it's a completely different ballgame when you have literally no control over that money and you're just an investor.

tc17 wrote:

That's also a very pathetic dividend considering how high the stock price is. There are tons of stocks that give MUCH higher dividends.

There are tonnes of stocks that are setup to pay high dividends to keep shareholders happy. If Apple could make strategic purchases with that cash that would optimize the value of the company then shareholders would be happier with that, especially given Apple's performance over the past 5 years. However it has reached a point where Apple readily admits there's too much cash to use reasonably in the foreseeable future.

Apple is likely to continue making acquisitions and investing heavily in its own future, so paying out a dividend that encompasses its entire profitability is a bad move. You've also got to consider that Apple's share price is significantly higher than its real value based on future expectations. They simply don't have the cash or profitability to pay a dividend like RIM has (compared to their market cap)

Secondly, as mentioned before, this opens Apple up to a whole new category of investors. These are exactly the type of investors that destroy otherwise innovative companies. They demand dividends above re-investing the money back into the company, and this begins the slow drain. See AT&T and Verizon for prime examples of this. These companies make tons of money and could very easily afford to build out FTTH to all of their customers. They can't however, because their dividend happy investors won't allow them to do so. It scared AT&T into doing FTTN instead, and Verizon got heavily slammed by the investment community for Fios. This is one of the reasons why the Fios rollout was curtailed.

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

Arty: Are you trying to insinuate that investors are short-sighted and don't understand technological progress? You will find no sympathy for that point of view here. </sarcasm>

The craziest thing about this announcement is the $100B is still sitting "under their mattress". The entire $45B plan will be paid for by future US cash earnings. That's insane! This plan doesn't even touch their existing cash pile. It just slows down their future US cash accumulation. The foreign cash accumulation will continue to rise at an alarming rate.

In the first fiscal year, Apple will spend about $10B ($2.5B per quarter) on dividends.The following 2 years Apple plans to spend $25B more on dividends ($3.12B per quarter).Over 3 years Apple plans to spend $10B on stock buy-backs ($833M per quarter).

That adds up to $3-$4 Billion per quarter.

Apple will easily earn more than $3B in US cash per quarter at the beginning of this period. And will probably be earning more than $8B per quarter in US cash by the end of this period.

With that information, Apples still has the problem of what to do with all this cash.

I wish I had that same problem.

Tech companies (like Apple) often have to hold an epic fuckton of cash because they basically have to self-finance everything. Other companies (with more predictable cash flows and longer product cycles) can issue corporate bonds, which are basically just like taking out a loan, except instead of getting the loan from a bank, you sell it on the open market. If your business is risky, you have to pay more to borrow money. For tech companies like Apple, it can be cheaper to just hold on to it. Given the current state of the corporate paper market, I can't say I disagree.

The other reason would be that Apple is seeing their growth slow down in the near future. The reason most companies don't hold on to cash is that their shareholders could take the dividends and invest them elsewhere at a higher rate than it would cost the company to borrow it. With Apple over the years, this has not been the case, but that might be changing (hence the dividends/buybacks.)

Also, I don't know if there is a quote for this, but there seems to be a general trend in business over the centuries: every highly successful company will eventually become a bank. The reason for this is that once you grow past a certain size, you end up having to self-finance.

Also, I don't know if there is a quote for this, but there seems to be a general trend in business over the centuries: every highly successful company will eventually become a bank. The reason for this is that once you grow past a certain size, you end up having to self-finance.

Banks are 90% debt typically. The money banks loan out is rarely their money. They make their money on spread between the interest rate they have to pay and the interest rate their customers have to pay.

You can disagree if you want. And it's more much complicated in the real world. But straight finance theory says dividends decrease shareholder wealth.

Several studies have compared companies that provide dividends with comparable peers who did not. Generally, companies that provide dividends offer a better return on investment than those that don't. Companies with large cash holdings have an unfortunate tendency to misallocate them over time. I much prefer the idea of Apple returning a portion of it's cash to me as a stock holder and allowing me to choose to re-invest it either in Apple or some other stock as I want.

Secondly, as mentioned before, this opens Apple up to a whole new category of investors. These are exactly the type of investors that destroy otherwise innovative companies. They demand dividends above re-investing the money back into the company, and this begins the slow drain. See AT&T and Verizon for prime examples of this. These companies make tons of money and could very easily afford to build out FTTH to all of their customers. They can't however, because their dividend happy investors won't allow them to do so. It scared AT&T into doing FTTN instead, and Verizon got heavily slammed by the investment community for Fios. This is one of the reasons why the Fios rollout was curtailed.

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

Arty: Are you trying to insinuate that investors are short-sighted and don't understand technological progress? You will find no sympathy for that point of view here. </sarcasm>

No; it's just a different business model. AT&T and Verizon have to invest in infrastructure. In business, there are two types of money: debt financing (issuing corporate bonds to raise cash) and equity financing (cash generated from running the business.) The money in the company literally belongs to the shareholders; they don't buy stock in your company because they want to build fiber networks, they buy your stock because it will pay them back either through dividends or share price appreciation.

For all intents and purposes, debt is "cheaper" than equity. Meaning that if you know you will need to spend $10 billion upgrading your infrastructure over the next 10 years, it's actually cheaper for you to issue a $10 billion dividend and then borrow the money (assuming your company's bond rating is good.) This is called leverage, and for most companies with stable cash flows (like AT&T) it's a great idea; because your shareholders can take the dividends (or profit from buybacks; it's effectively the same thing) and invest them elsewhere.

Also, I don't know if there is a quote for this, but there seems to be a general trend in business over the centuries: every highly successful company will eventually become a bank. The reason for this is that once you grow past a certain size, you end up having to self-finance.

Banks are 90% debt typically. The money banks loan out is rarely their money. They make their money on spread between the interest rate they have to pay and the interest rate their customers have to pay.

Right, but once you start self-financing very large investments, you build up the expertise and operational knowledge to start doing it for other companies. So all you have to do is start leveraging up throwing money into the process.

That's also a very pathetic dividend considering how high the stock price is. There are tons of stocks that give MUCH higher dividends.

That's only a semi-valid comparison and then only from a new share holder perspective. From a management perspective, you can only look at dividend as a % of net income.

As a long term investor, I don't want too much of a dividend. Depending on my objectives, I may not want a dividend at all. However, even if my primary goal is income via dividend, I don't want the company to be unable to weather a downturn because it turned all its profits into dividends. I also don't want the company to be unable to make strategic maneuvers because they have no cash.

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

I don't think, given Apple's conservative fiscal policies. that we have to worry about shareholder demands impacting Apple's ability to re-invest in the company.

As others have pointed out, the current %1.8 can be easily be paid for out of free cash flow without putting a dent in the current cash cache. Even when you add the $10B buyback, Apple is not going to have a problem growing research, investing in supply chain, etc. Plus, since when does Apple let shareholders dictate to the board? Just because they have more money than they know what to do with doesn't meant they're going to be buffalo'ed into paying it all out as dividends.

And as for the argument that Apple's dividend is middlin' compared to IBM or Cisco? They pay pennies per share, not dollars per share, so in terms of actual cash paid per year? Apple has them beat. Yeah, it's under 2% and it likely get worse as the stock price rises, but imagine what percent IBM or Cisco would be paying if their stock were valued at $600 a share. (Hint, it's not likely to be close to even 1%.)

Secondly, as mentioned before, this opens Apple up to a whole new category of investors. These are exactly the type of investors that destroy otherwise innovative companies. They demand dividends above re-investing the money back into the company, and this begins the slow drain. See AT&T and Verizon for prime examples of this. These companies make tons of money and could very easily afford to build out FTTH to all of their customers. They can't however, because their dividend happy investors won't allow them to do so. It scared AT&T into doing FTTN instead, and Verizon got heavily slammed by the investment community for Fios. This is one of the reasons why the Fios rollout was curtailed.

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

Arty: Are you trying to insinuate that investors are short-sighted and don't understand technological progress? You will find no sympathy for that point of view here. </sarcasm>

No; it's just a different business model. AT&T and Verizon have to invest in infrastructure. In business, there are two types of money: debt financing (issuing corporate bonds to raise cash) and equity financing (cash generated from running the business.) The money in the company literally belongs to the shareholders; they don't buy stock in your company because they want to build fiber networks, they buy your stock because it will pay them back either through dividends or share price appreciation.

For all intents and purposes, debt is "cheaper" than equity. Meaning that if you know you will need to spend $10 billion upgrading your infrastructure over the next 10 years, it's actually cheaper for you to issue a $10 billion dividend and then borrow the money (assuming your company's bond rating is good.) This is called leverage, and for most companies with stable cash flows (like AT&T) it's a great idea; because your shareholders can take the dividends (or profit from buybacks; it's effectively the same thing) and invest them elsewhere.

This is all well and good, but you're forgetting the fact that their shareholders are fighting their attempts to upgrade their infrastructure no matter how they finance them. Which brings us back to my point. The type of investor that is looking for a dividend is generally very, very shortsighted. This is not what you want in a technology company where investment in future technologies is paramount.

If anything, a share buyback makes much more sense in this case. Share buybacks are generally one time events. They also don't greatly change the type of investor that is buying shares in your company. Dividends are very different though. Now you open up your company to a very different type of investor that expects you to issue a given dividend on an annual basis and you are now beholden to issue similar to ever increasing dividends every year. This is exactly the type of investor that will kill Apple.

You can disagree if you want. And it's more much complicated in the real world. But straight finance theory says dividends decrease shareholder wealth.

Several studies have compared companies that provide dividends with comparable peers who did not. Generally, companies that provide dividends offer a better return on investment than those that don't. Companies with large cash holdings have an unfortunate tendency to misallocate them over time. I much prefer the idea of Apple returning a portion of it's cash to me as a stock holder and allowing me to choose to re-invest it either in Apple or some other stock as I want.

Wow, I'm surprised that I had to read this far before this. Lots of armchair analysts debating the pros and cons of dividend investing.

Someone brought up the Bing example of a waste of shareholder money. History has shown this to be all to accurate.

Dividend paying stocks historically* outperform non-dividend stocks.

*... Of course past performance does not guarantee future performance and all that.

That's a pretty puny rate of return. As stated in the article, comparable to a savings account.

Where do you have your savings account? I checked our non-profit's savings account this morning, mine's returning 0.03% annual rate. I talked to the bank's business guy about CDs et. al., and he said I was wasting my time. There's no issue with liquidity; everybody's swimming in cash, and they're not lending; they won't pay for more.

You can disagree if you want. And it's more much complicated in the real world. But straight finance theory says dividends decrease shareholder wealth.

Several studies have compared companies that provide dividends with comparable peers who did not. Generally, companies that provide dividends offer a better return on investment than those that don't. Companies with large cash holdings have an unfortunate tendency to misallocate them over time. I much prefer the idea of Apple returning a portion of it's cash to me as a stock holder and allowing me to choose to re-invest it either in Apple or some other stock as I want.

Wow, I'm surprised that I had to read this far before this. Lots of armchair analysts debating the pros and cons of dividend investing.

Someone brought up the Bing example of a waste of shareholder money. History has shown this to be all to accurate.

Dividend paying stocks historically* outperform non-dividend stocks.

*... Of course past performance does not guarantee future performance and all that.

Funny. I've never found dividend stocks outperform non-dividend stocks. Especially AAPL. You know how much AAPL has gone up since Steve Jobs returned as an advisor to Gil Amelio? It's a 120 bagger for some of us right now. Dividend stocks made a pittance compared to that over the same amount of time.

Maybe "in general" what you say is true. But not for most of the stocks I've owned.

You can disagree if you want. And it's more much complicated in the real world. But straight finance theory says dividends decrease shareholder wealth.

Several studies have compared companies that provide dividends with comparable peers who did not. Generally, companies that provide dividends offer a better return on investment than those that don't. Companies with large cash holdings have an unfortunate tendency to misallocate them over time. I much prefer the idea of Apple returning a portion of it's cash to me as a stock holder and allowing me to choose to re-invest it either in Apple or some other stock as I want.

Wow, I'm surprised that I had to read this far before this. Lots of armchair analysts debating the pros and cons of dividend investing.

Someone brought up the Bing example of a waste of shareholder money. History has shown this to be all to accurate.

Dividend paying stocks historically* outperform non-dividend stocks.

*... Of course past performance does not guarantee future performance and all that.

Except, who has out performed Apple in the last 6 months with a 45%+ increase? Or since 1997 with a 4500%+ increase?

Funny. I've never found dividend stocks outperform non-dividend stocks. Especially AAPL. You know how much AAPL has gone up since Steve Jobs returned as an advisor to Gil Amelio? It's a 120 bagger for some of us right now. Dividend stocks made a pittance compared to that over the same amount of time.

Maybe "in general" what you say is true. But not for most of the stocks I've owned.

No one said that dividends alone equaled non-dividend stock growth. What studies consistently find is that for a given stock with dividends it's 'growth + dividends' > 'growth' of a comparable stock that doesn't pay dividends.

And as for your example of Apple, for every Apple one can easily find a stock that has taken a nose dive. The point is that on average, over the long term, companies that provide dividends have consistently been a better investment. And that doesn't mean an investor should ignore good stocks that don't provide dividends (I own some APPL), but it does mean that Apple providing dividends is probably good news to its investors.

That's also a very pathetic dividend considering how high the stock price is. There are tons of stocks that give MUCH higher dividends.

And they tend to be stocks with limited growth potential that are attractive to investors primarily for the dividend. Apple may well be approaching that point, but they are not there yet.

Apple's cash reserves give them the ability to "lock-in" parts in large quantity at attractive prices and the ability to make rapid strategic acquisitions. More importantly, it gives Apple the ability to take risks. Locking in large quantities of parts is one example of this. What if the new iPad is less popular than Apple expects, and Apple ends up having paid for stacks of retina displays that it won't be able to sell for months? What if Apple finally does release an innovative TV set design, and it fails to be a hit with consumers? It is fear of risk that has most of Apple's competitors playing "follow the leader" with Apple, producing products that are minor variants on what Apple is selling. Apple can afford to fail and still come back. Apple can afford to weather a major economic downturn. What if the European Union collapses, triggering another world-wide depression? Apple can weather a double-dip depression and come back strong whenever the recovery occurs.

I really wish apple would buy out t-mobile. it would give me a supported device on t-mobile (the iphone) and t-mobile would have to make their site a bit more accessible to its blind customers (of which I am one).

Jobs was right to fight this while he was in the hot seat, and I'm very disappointed the new regime has caved.

I don't think, given Apple's conservative fiscal policies. that we have to worry about shareholder demands impacting Apple's ability to re-invest in the company.

Plus, since when does Apple let shareholders dictate to the board? Just because they have more money than they know what to do with doesn't meant they're going to be buffalo'ed into paying it all out as dividends.

I see Apple's growth slowing. Once you get so big, no matter how good you are, you just start running out of more people to sell to. Any % growth bigger than population growth must eventually run into this.

See for example, even governments growing spending faster (much) than GDP - unlike Apple, they can (and are) print money itself - and it still isn't enough.

Historically, the advent of a company paying out a dividend when they didn't before is an admission that the super high growth times are over with. Doesn't mean they don't do well and continue to grow incrementally, just that the big "boom and bubble" are more or less done with.

I see several signs of this with Apple, actually. One is the new iPad, that really isn't that new, just "more" which is hardly innovative in the bigger scheme of things. It's not "new, I gotta have this thing that does stuff nothing else did, and no one ever imagined possible before".

And the iPhone, and then the first *commercially viable pad*, though the former was actually dreamt up by the writer of the Dick Tracy cartoons (wrist video phones!) - were innovative, or at least the realization that the innovations of others in chips and software and batteries could finally be combined in a commercially viable form was innovation - timing really IS everything. But now? Meh.

Further, as a trader, Apple is showing a classic chart pattern, we call it an exponential blowoff top.These NEVER end well, they can't. The thing that causes them is everyone finally getting onboard, and going all in. That's great during that fantastic concave up rise, but what happens when everyone is all in? First seller triggers a cascade. The "fast money" gets out quick, triggering a further drop. This trips stops for all the late comers at the very least - and even people with multi-baggers start getting nervous. A little more, they start to sell, and that whole blowoff retraces.

Go look at a year plot of almost anything with one of these blowoff shapes - silver did one not too long ago (peaked in may 2011) - and I made money on it on both sides of that. The Apple chart is doing the exact same thing right now. We know that the actual value of silver had very little to do with with that, right? So the fanboys can leave me alone here if they would - it's not the point.

The stock market can stay irrational longer than you can remain solvent. The big deal about the divvie is now some bigger, slower money will put a floor under what I see as an inevitable retracement of the recent blowoff - so it was smart.

And yes, that's a tiny dividend, a lot of stocks pay more. Hell, even treasuries pay more than that, and they are in negative real interest rate territory.

Note this has nearly nothing to do with cash, fundamentals, or anything but trader herd behavior. The smarter fast money will start shorting the stock, accelerating the decline...then of course, it will go too low and become a buying opportunity again, if in fact there was nothing really wrong with the fundamentals the entire time. That's how the whole buy low, sell high, thing works - you control your emotions (which is what it takes to buy when the blood is running in the streets), and sell when every shoeshine boy is bragging about how much he's making on this hot stock.

All the hedge funds are into Apple heavy - and they can move on a dime, literally, and make a lot of this self-fulfilling. And a lot of people's retirements are in it big too - and a ton of mutual funds. Consider the fallout of a major drop there - less money to buy the bling and keep the fundamentals good! That's what happens when you get too big!